AI Stocks May Be Blown Up By Crypto Crowd

Artificial intelligence has whipped up investors into a frenzy. It is easy to tell that crypto bros are piling in with big bets on small and speculative cryptocurrencies linked to artificial intelligence that indicate that the froth is reaching peak levels.

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Late last year, OpenAI announced the launch of its chatbot ChatGPT, which sparked a period of intense popular interest in the sector, and the beginning of an AI arms race. As Google parent Alphabet GOOGL –6.19% (GOOGL) and Chinese tech giant Baidu BIDU –3.66% (BIDU) are set to launch their own chatbots in the near future, Microsoft MSFT +3.08% (ticker: MSFT), which backed OpenAI, is going to use it to shake up the web search market with a chatbot.

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Investors are focusing their attention on smaller AI names that may deliver bigger returns, along with IBM (IBM) and Nvidia (NVDA), which are positioned as major players in the industry. It seems to me that this feeding frenzy is not going to end well in the long run as Trade Algo has noted.

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The crypto bros have not been left out in the cold, and are following suit as well. Despite a wider rally in digital assets to start the year with Bitcoin BTCUSD -0.59% up 40% in a matter of weeks, as well as many smaller cryptos, or altcoins, experiencing massive spikes-those linked to artificial intelligence, are outperforming other assets.

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The sector index of 73 AI-linked cryptos compiled by data group CryptoSlate shows that the cryptocurrency market has seen an incredible 87% growth in just seven days alone, with some individual tokens seeing even higher gains.

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It has been 675% since the start of the year since the price of Singularity NET, which facilitates monetizing AI services on the blockchain, went up. Over the same period, the price of Artificial Liquid Intelligence, which records the ownership rights of crypto assets that are backed by blockchain technology, has rallied by 500%. The value of fetch.ai has grown by more than 200% since the beginning of 2023, a testament to its ecosystem's mission to create a decentralized network based on machine learning.

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Despite the hype surrounding AI, the descriptions of all three crypto tokens - which now have a combined market capitalization exceeding $1.3 billion - made it easy to understand why investors would pile in amidst the hype surrounding these technologies.

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It is no secret that crypto is known for its bubbles, and this AI-driven rally has all the screaming characteristics of one of those bubbles. It is hard to tell how different the speculative crypto surge is from the one gripping the stock market, where names like C3.ai AI +7.15% (AI), BigBear (BBAI), and SoundHound (SOUN) have ripped higher in recent weeks.

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There may be even more speculative bets on crypto tokens than on smaller-cap AI stocks, yet both bets have been booming at the same time, indicating the same frenzy. Investors beware.